Efficiency at the Heart of Supply Chains: Opportunities in the Transportation and Logistics Sector

Authors

• Raj Sapru

  Former Director, Advisory Services, BSR

• Linda Hwang

  Former Manager, Research, BSR

Global economic trade is dependent on ocean/maritime transport, with maritime ships responsible for transporting 90 percent of global goods. By some estimates, 3 to 4 percent of global greenhouse gas (GHG) emissions originate from the shipping of goods across oceans. This means that cutting CO2 emissions from transportation in the lifecycle can be a significant opportunity to make the greatest gains in CO2 reductions.

In the following discussion, BSR Research & Innovation Manager Linda Hwang talks to BSR Director Raj Sapru about how the transportation sector sits in a unique position to help companies improve their overall sustainability performance—even beyond strict carbon emissions reductions.

Hwang: There are a lot of activities happening right now on sustainability tools and metrics. There is the Sustainability Consortium, the apparel industry’s Eco Index, and the Stewardship Action Council’s performance-based sustainability index. But despite some estimates that 4 percent of global GHG emissions originate from the shipping of goods across oceans, these tools do not give much guidance on how to address emissions from transportation and logistics.

Sapru: The transportation supply chain is significant for many global companies, and cutting CO2 emissions from the transportation portion of the lifecycle can result in significant gains. However, the transportation and logistics (T&L) sector as a whole isn’t fully plugged into generally accepted supply chain frameworks.

If you look at different lifecycle assessments (LCAs), we’re only starting to see robust work on T&L. SmartWay has been a very successful program for trucks in the United States, and there are a variety of other programs and groups around the world creating standardized ways to estimate emissions. Ultimately, these standards across different modes of transportation will need to be unified so that companies can more easily estimate emissions from an entire route and be more transparent about their impacts.

Transparency is a subject that deserves additional focus by the T&L sector. The Global Reporting Initiative, for example, doesn’t have a widely used sector supplement for T&L. The Carbon Disclosure Project (CDP) has made progress in supply chain transparency, but CDP submissions from the T&L sector are still rare. Since these companies are at the center of supply chains, they are positioned to be great partners on supply chain sustainability.

Hwang: It sounds like the T&L sector can produce a more complete picture of a company’s supply chain.

Sapru: Early CSR focused on labor conditions and in-factory issues, but recently, we’ve seen a switch in attention to the product and the end of life of products. However, we’re still missing a critical piece of the overall picture: We need to ask ourselves what the sustainability impacts and opportunities are in between the factories and the customers. Our BSR conference 2010 session “Beyond the Factory Gates,” focused on what happens to products after they leave the factories, to give companies a better sense of the complex network required to move their products across modes of transportation, geographies, and between intermediaries.

Consumers are increasingly interested in where their products are coming from and how they arrived on the shelf. T&L companies have a key role to play in facilitating answers to these questions, and perhaps offering solutions to reduce associated sustainability impacts in the product value chain.

Hwang: Who’s driving this approach to managing supply chains? Where is most of the activity coming from?

Sapru: Through our work with the Clean Cargo Working Group, we increasingly see global brands turning to their supply chains to achieve their sustainability goals, and global container shipping lines rising to the occasion through closer collaboration and increased transparency. The transportation portion of the supply chain is significant, and both brands and T&L providers recognize how increased transparency can lead to more focused discussions about where environmental improvements are needed and how to integrate these improvements into the business-to-business relationship.

Transportation providers have found a win-win between fuel reductions and CO2 reductions. Operational efficiency, in this case, happens to also be really good for sustainability. If you make the ships run more efficiently, they will use less fuel. Any efficiency improvement saves transportation providers money and has a positive environmental impact.

Hwang: So beyond the potential for carbon emissions reductions, what role can T&L companies play in helping their customers achieve their sustainability goals?

Sapru: T&L companies are at the center of supply chains. They facilitate the sourcing of raw materials, connect intermediate manufacturing steps, are involved in warehousing and inventory management, and ultimately bring products to market. They connect resources with people that need them and are a critical engine for economies to function and grow. T&L providers are in a prime position to help companies optimize improvements in environmental performance. Examples of such improvements include route optimization—figuring out the best route from point A to point B—or a mode shift—using lower-emitting modes of transportation when possible.

T&L companies can also help customers meet sustainability objectives beyond carbon emissions reductions—for example, by protecting human rights in transport and during ship production/end of use, and by improving port air quality. However, we currently lack a strong set of examples that highlight how global brands are collaborating with transportation providers. This will require T&L companies to be more in tune with their customers’ sustainability challenges.

Hwang: BSR talks a lot with our member companies about how various industries can be “enablers” of sustainable development. For example, there are several opportunities for the information and communications technology sector to support sustainable development. I would think the same applies for transportation and logistics service providers.

Sapru: Absolutely. Companies should be partnering with their T&L service providers to co-develop solutions. For consumer electronics manufacturers and retailers, this could be about new product take-back approaches. For home goods companies, it could be about the logistics of sourcing sustainable fibers. And for a beverage company, it could be about focusing on a lower product-lifecycle footprint—this list goes on and on. Global transportation service providers are often physically positioned to provide these services because they already have globally networked operations and insight across many markets at once.

Hwang: So this is a huge business-to-business opportunity waiting to happen?

Sapru: Yes, but one challenge is that, historically, T&L service providers have been considered a pass through. Their role was to efficiently move materials and finished products from one place to another. As stakeholder expectations for sustainability increase, companies are looking to their supply chains to share the responsibility. Since T&L providers serve a wide vatiety of sectors, they see a corresponding spectrum of expectations. Whatever the product, they’re part of the chain and have a large stake in making it more sustainable.